Question #39

Reading: Reading 25 The Term Structure and Interest Rate Dynamics

PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf

Page: 15

Status: Correct

Correct Answer: A

Part of Context Group: Q39-40 First in Group
Shared Context
- What would be the most appropriate duration-neutral strategy based on information presented in Forecast 2? A) Rotate into a barbell strategy. B) Rotate into a long-maturity bullet portfolio. C) Rotate into a short-maturity bullet portfolio.
Question
Based on her first comment about bond spreads, Eden is most likely tracking which spread?
Answer Choices:
A. TED spread
B. MRR-OIS spread
Explanation
TED spread is the difference between the MRR (captures the risk of interbank loans) and T- bill yield. The MRR-OIS spread measures the difference between MRR and the overnight indexed swap rate, and is a measure of general credit risk and well-being in the banking system. The Z-spread is the constant spread, when added to benchmark spot rates, makes the present value of a bond's future cash flows equal to its market value. The Z-spread measures credit, liquidity, and option risk on a risky bond.
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